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New rules hit China mobile music downloads

Sales down more than $50m, but recovery expected

Growth in music downloads to mobile phones in China stalled last year after
the government introduced new regulations, according to recent market research.

Sales of music tracks direct to mobile phones fell to $703.2m in 2006, down
more than eight per cent compared to the previous year, reported research firm
In-Stat.

"China's mobile music market slowed down in 2006 as a result of service
provider regulation initiated by the Chinese Ministry of Information Industry
and mobile operators," said In-Stat analyst Raymond Yan.

The tighter consumer protection regulations were imposed on mobile service
providers in summer 2006. Thousands of mobile subscribers had complained that
they were being charged for services or downloads which they had not requested.

With the introduction of the new rules, customers have begun to receive clear
notification of new mobile services before they start. Additional protections
include a preset upper limit on monthly charges.

The new rules immediately produced a dramatic drop in revenues from mobile
services like ring-tones and music downloads.

"Even though the service provider regulation has affected the mobile music
market in the short-term we believe it is positive for the continuous healthy
development of the wireless value-added service market," said In-Stat's Yan.

The analyst firm forecasts that China's mobile music market will begin to
recover from the service provider rule changes this year.

However, further challenges lie ahead over the next three years as the
proportion of iPod-style music phones is predicted to rise from 45 per cent to
85 per cent of all handsets.

"The increasing popularity of music phones is an uncertain factor for the
mobile music market, since mobile users can download pirated music from the
internet and upload it to their phones," said Yan.